INTERNATIONAL BUSINESS : Scratching South America’s Surface : Mining: Hundreds of firms have joined a new gold rush to a continent that offers millions of square miles of untapped deposits.

In a coincidence of history, this ancient city--where conquistador Francisco Pizarro seized the Inca ruler Atahualpa in 1532 and and collected a ransom in gold but had him killed anyway--is the focal point of a new rush for gold in South America.

The most productive gold mining operation on the continent is rapidly gnawing down timeworn volcanic hills at a place called Yanacocha, 25 miles north of here in Peru’s northern highlands.

The Yanacocha complex, which is operated by Newmont Mining of Denver, will yield more than 500,000 ounces of gold in 1995, and next year the company plans to extract 600,000 ounces--worth more than $225 million at recent prices.

Big new gold mines are also panning out in Chile, Bolivia and Brazil. Companies are working to prove other promising claims around the continent, while geologists scour the hinterlands, from Venezuela’s “wild south” to Argentina’s Patagonia, for more signs of the glittery yellow metal.

“Hundreds of companies are looking for gold in South America,” said Charles (Scottie) Bruce, a mining consultant based in Bolivia. And they are spending hundreds of millions of dollars on exploration, claim purchases and development.

What set off the South American gold rush of the 1990s? For one thing, world demand has been strong and prices attractive. And South America offers millions of square miles that have yet to be prospected or mined with modern techniques.

“It’s barely been scratched,” Bruce said.

Since the mid-1980s, many previously turbulent South American countries have been politically stable, an important plus for long-term investors. Governments eager for foreign capital and technology have changed investment, foreign exchange, tax and mining codes to favor free enterprise.

At the same time, improved technologies for extracting gold from low-grade ore have turned previously ignored South American deposits into potential bonanzas. The spectacular success of Yanacocha and some other operations has further whetted mining appetites.

So the word is out: Go south--the rush is on.

South America’s gold production has increased steadily over the past decade, from an estimated 178 metric tons in 1985 to 252 tons last year--about 11% of the world’s gold output. The figures rose despite the fact that production in Brazil, the continental leader, has declined.

Still, Brazil’s 75 tons in 1994 made it the world’s No. 7 producer after South Africa, the United States, Australia, Russia, Canada and China. And Brazilian specialists say the country, which covers half of South America, is being swept by a new rush.

“It’s the biggest rush I’ve seen in Brazil,” said Edison F. Suszczynski, a Brazilian university professor and consultant in “economic geology.”

Suszczynski called the Tapajos region of the Amazon Basin “the greatest gold area on the planet.” At least 375 gold deposits have been found in the 95,000-square-mile area, he said, and 55 of those are major.

Suszczynski said more than 30 foreign companies, often in partnerships with Brazilian firms, are looking for new deposits in Brazil, including Newmont, Toronto-based Barrick Gold and Homestake Mining of San Francisco.

“Barrick opened its office here in Brazil only a couple of months ago, and we already have signed agreements in at least four very important areas where there are no companies present,” said Ramon Araneda, Barrick’s general manager in Brazil.

The government-operated Vale do Rio Doce company is Brazil’s biggest gold miner, with an expected production of 600,000 ounces this year, up 25% from last year. The government is preparing to privatize Vale.

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In Peru, Newmont was the first foreign mining company to make a major investment in 20 years. Economic instability, official policies that discouraged foreign investment, and a raging guerrilla war had dried up international interest in Peruvian gold, copper and other deposits.

“We knew of the existence of gold ore,” said Jorge Diaz Artieda, director of mining at the Peruvian Ministry of Energy and Mines. “What was happening was that political, social, economic and legal conditions didn’t provide guarantees necessary for investor decisions.”

President Alberto Fujimori, who took office in 1990, has changed all that, putting the economy in order and gaining the upper hand over terrorists and guerrillas. New laws encouraging foreign investment in mining allow restriction-free exports of gold and remove other legal bottlenecks, such as an old requirement that production be carried away by Peruvian ships.

Now “you can use canoes if you want,” Diaz quipped.

Indeed, the mining boom is providing jobs, tax revenue and, most important, foreign exchange for Peru and other countries blessed with the right geology. And as leftist politics have been displaced by free-market ideologies across Latin America, much of the traditional opposition to foreign companies removing natural resources has been defused.

Dozens of companies are following Newmont’s lead, looking for gold all around Peru. Big ones include Canada’s Placer Dome and Barrick Gold and London-based RTZ. The boom in exploration will bring a boom in gold production, Diaz predicted.

Newmont Mining has invested about $100 million in Yanacocha, and production there could eventually exceed a million ounces a year, said Thomas M. Conway, the mine’s general manager.

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Conway said Newmont first found gold there using a fire assay method of ore analysis that can measure tiny amounts of metal. The volcanic ore now being mined contains less than two grams of gold per ton.

Daily dynamite blasts loosen layers of ore from the flattened tops of three hills. Front loaders scoop up 20-ton bites and dump them into trucks that carry 85 tons at a time.

“See, this is a mountain being shaved down,” Conway said as he conducted a tour of the mining operation. “There’s no visible gold here. It’s all microscopic.”

Mindful of arousing critics, the mining companies have sought to accommodate government overseers on environmental issues. As mountains are shaved down, for example, topsoil is being saved and will be used to restore landscapes.

But a sour note sounded recently from Guyana, on the northeastern corner of the continent. The Omai gold mine had to shut down after 400 million gallons of liquid waste containing cyanide spilled from a tailings dam into the country’s main river system.

Cambior and Golden Star Resources, both of Canada, invested $243 million in Omai, which opened in 1993 and has tripled Guyanese production. Because of the waste accident, the mine is expected to be closed for at least six months.

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All That Glitters

Gold production in Latin America has shown some increase, but at 252.2 metric tons in 1994, it is far below the 331 tons produced in the United States and the 584 tons South Africa produced. Latin American gold production, in metric tons:

1994: 252.2

Source: Gold Fields Mineral Services